Ever wondered what the terms like Market Cap, Shares Outstanding, P/E Ratio, Beta, Dividend Rate, Dividend Yield, Float etc means? we decided to put together short descriptions of the commonly used terms in stock market. We will continue to update this list.
To the point, this can be your tiny stock market dictionary.
Market capitalization, commonly called market cap, is the market value of a publicly traded company's outstanding shares. Market capitalization is equal to the share price multiplied by the number of shares outstanding.
The price-earnings ratio, also known as P/E ratio, P/E, or PER, is the ratio of a company's share price to the company's earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. For example, a company whose shares are trading at $1 and has earnings per share of 10 cents has a PE ratio of 10. A high P/E ratio suggests that investors expect high returns in the future, whereas a low P/E ratio indicates investors expect slow future growth.
Shares outstanding are all the shares of a corporation that have been authorized, issued and purchased by various investors.
In finance, the beta is a measure of how an individual asset moves (on average) when the overall stock market increases or decreases. In other words its a measure of market risk. Most stocks have betas between 0 and 3. Beta value of 1 indicates that a stock value moves at the same rate as the overall market, beta value of below 1 indicates that a stock moves slower than the overall market hence its more stable than the overall market. Beta value of over 1 indicates that stock is more volatile than the overall market hence it moves faster (can go high or low faster than the overall market).
Dividends Rate Per Share
Dividend rate per share indicates the amount company paid per share in last 12 months to the share holders.
The dividend yield percentage or dividend-price ratio of a share is a ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price. For example, dividend yield of 3% today and the share price of 100$ would indicate that a company paid 3$ dividend per share (3% of 100) in the last 12 months.
Float, public float or free float represents the portion of shares of a company that are in the hands of public investors as opposed to locked-in stock held by promoters, company officers, controlling-interest investors, or governments.
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